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Twist or Fold – What’s a Small Business Owner To Do?

What should small business owners be looking to do as the economic landscape continues to meander at uninspiring levels?

An old colleague of mine, who managed a chain of 100+ retail stores, was a veteran of 2 previous recessions and used to say that the only way to survive a recession was to hunker down, batten the hatches and ride it out and yes, he was American!

Much of today’s social commentary advises the opposite – discussion forums are full of articles decrying the folly of cutting jobs, or marketing and advertising spend. However, marketers and advertisers do tend to be avid contributors to discussion forums, so it might be difficult to take that advice without a dose of salt.

So what’s a small business owner to do? Well, there obviously can’t be a one size fits all answer.

If your business is in imminent danger of running out of money and you have exhausted all sources of further funding, then your options may feel limited. You may be in a cut everything that moves frame of mind just to keep the business afloat.

In such circumstances the only route you can see to survival is to run a skeleton operation and hope that you can hang on until the economy picks up again, whenever that will be.

This is more likely to succeed for service businesses, which generally carry lower fixed overheads. For some other businesses, however, it can actually be a riskier strategy than maintaining, or even increasing spend.

How can that be, I hear some object? Well, unless you have a cash flow forecast which shows that, even with your cuts, you aren’t going to run out of funds in the next 24 to 36 months, your cost cutting could be merely, in EU bailout terminology, merely kicking the can down the road.

If your accounting projections show that, say, you are going to run out of cash in 9 months but your cost savings buy you a further 9 months, then you are effectively gambling on the economy having picked up within 18 months.

That’s out of your control, so you’re effectively rolling the dice and betting your company on something you cannot influence.

Can you even rely on the revenue figures in your accounting cash flow forecast holding up till then anyway?
Have you made adequate provision for the impact your cuts will have on short term revenue?
Even if the economy does pick up in time for you, will you be able to take advantage of it? That assistant you let go 12 months earlier may have found alternative employment – will you have the funds and time to replace and train an adequate replacement to be able to expand again?

An alternative approach:

• acknowledge that your accounting cash projections show you are going to go under unless something changes;
• attempt to force the change by shaking things up, for example offering limited time discounts/promotions and making moderate and well-judged investments in marketing which you believe will yield early returns – you could even use the underutilised assistant you have kept on to do leaflet drops. His motivation level could be high if you share your all or bust strategy with him, and he may even suggest ideas you hadn’t thought of.
• Maybe you could source a talented new start marketing firm, which is prepared to work with you on a pay by results basis to generate some case study collateral.

With this approach you may still fail, and earlier, but at least you will have some control on the outcome rather than enduring a passive drawn out expiry. If it works, even partially, and you are still trading when things pick up, you will be in a much better state of readiness to capitalise and kick on to profit.

So what’s right for your business? Cut and take a chance on the economy? Or change/invest and take a risk on your strategy and execution paying off?

Accounting projections of What if scenarios will help inform your decision, but at the end of the day it’s a judgement call only you can make.
My only advice is – make a conscious strategic decision. It’s too easy to default to the passive approach by not making any decision.

If the circumstances described feel familiar to you, don’t carry the burden alone – call Certax Accounting Preston for a free informal chat.